Agency Fees Tax Q&A

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QUESTION

If a UK letting agent collects say £10,000 in rents from tenants and passes this onto landlords net of the agents 5% fees, what income does the agent need to declare to HMRC? Would it be the full £10,000 of rent collected or would it be his 5% agency fees only?

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London in rent crisis as thousands of landlords tried to sell last year

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According to London’s CityAM reporter Laira McGuire, “Almost half of UK landlords have tried to sell their property in the last 12 months, as owners look to rid themselves of mortgage pressures in a worrying blow for renters.”

The claim is based on a study carried out by lettings platform Goodlord which interviewed around 2,000 landlords and estate agents. It found that around 77.5 per cent of those questioned in London blamed rising mortgage rates for those landlords putting properties on the market.

Section 21 in use

According to a recent study carried out by the housing charity Shelter, landlords are using the Section 21 eviction process while they can ahead of the implementation of the Rental (Reform) Bill, while the process is still available to them. It means that, according to Shelter, “notices pursuant to Section 21 of the Housing Act 1988 (as amended), are being served on tenants in the private rented sector every 8 minutes, which is the equivalent of 172 Section 21 notices per day.”

The Renters (Reform) Bill 2022-23, introduced in May of 2019, is the Government’s attempt at reforming the private rented sector in England, among other things, to remove the fear of evictions from private tenants. It intends to fulfil the Conservative Party’s manifesto commitment of abolishing the Section 21 eviction process during the Government’s tenure.

But progress on this has been slow and only 18 months or so before the next general election the Bill finds itself only on its second reading in the House of Commons. Given the complexity of the Bill it is looking doubtful it will make the promised Royal Assent by the end of 2023.

Mortgage pressures

The moves by hoards of private landlords to sell-up over the last 12 months – many looking to escape the mortgage pressures they are under while others fear they won’t be able to remove bad tenants when the new laws come in – is making life extremely difficult for tenants looking for good quality rental accommodation at the right prices.

Figures vary between 100,000 and over 150,000 landlord properties exiting the market over the last year but these are reliable figures based on HMRC returns and The National Federation of Residential Landlords (NFRL). Some estate agents have seen instances of as many as 17 prospective tenants queuing outside rental proprieties in London for a viewing.

Landlords are even asking tenants for CVs to assess their character, which is as a reflection of the demand from tenants and the fact that in England and elsewhere in the UK the private rented sector has such scarcity of rentals in what is now decidedly a totally landlords’ rental market.

Goodlord reports that 98 per cent of estate agents in London said that “at least one of their landlords was selling a property. As a whole across the UK, 47 per cent of the landlords have tried to shift their property in the last 12 months.”

The PRS and its landlords have gone through something of a perfect storm over the last 12 months with the turbocharging of interest rates following last year’s mini budget and the bank of England’s 14 consecutive interest rate hikes, sending borrowing costs higher than they have been for a generation. Many landlords have never experienced rates so high in their whole careers.

Along with many other new regulations being introduced into the PRS, the threatened tightening of the EPC targets to EPC rating of “C” by 2025 for new properties and 2028 for existing rentals has panicked some owners of older rental properties. They will likely need large amounts of money spending on them, and now with the advent of the Renters (Reform) Bill, for many its been the “final straw”.

House prices fall

One effect of this attempted sell-off is the added impetus to the fall in house prices generally, which so far this year has been in the region of 4.6 per cent. This is expected continue as estate agent responders to the survey stated that they expect more landlords to reduce their property portfolios over the next 12 months.

On the other hand, research by international agents, Hamptons says that rents are likely to rise by almost five times more than house prices between now and 2026. Hamptons is forecasting that rents will rise by 25 per cent between January 2023 and 2026, which will easily outpace the 5.5 per cent average growth prediction in house price rises over this same period.

A rental supply problem

Hamptons thinks that the long-term rental supply problem due to the factors stated above will mean that much of the costs will be passed on to tenants by way of increased rented biting deeply into many tenants’ disposable income. It looks like higher interest rates are here to stay for the long term, which will continue to weigh heavily on house sales and prices.

The trend spells out a difficult period for the UK’s 4.6 million private tenants who are seeing a shrinking pool of rentals available to the market. In their desperation to secure rentals, some potential have fallen foul of scams, such as fake rentals and stolen deposits, which have started to proliferate in a market with such growing scarcity.

According to Goodlord, 73 per cent of renters reported to them that finding a property to rent was “one of the most stressful things they have ever done.” The dwindling supply has also allowed landlords, when letting a new rental, to increase rents, very often achieving rents higher that the advertised price, due to the competition between competing prospective renters.

One agent, Mark Gray, director at Elevation Lettings reported that:

“When tenant contracts come to an end, they now look around the marketplace and realise that there’s little point moving to another property, as it’s likely to cost them another hundred pounds or more per month,”

Richard Davies, chief operating officer of Chestertons, has said:

“London has always experienced high demand from tenants which has been met as much as possible by private as well as corporate landlords,”

“With major changes such as the Renters (Reform) Bill being introduced as well as rising interest rates generating less profit for overleveraged landlords in particular, the market has seen some deciding to sell up.

At the same time, however, he says, “we are liaising with homeowners; not landlords; who delay their sale due to the weaker sales market and put their property on the rental market instead.”

In the debate about whether landlords are leaving the private rented sector in the numbers speculated in the media, and whether tenant demand really is a high as is claimed, the findings from the RentTech firm Goodlord and Vouch goes a long way to strengthing the claims that this is definitive proof of what is happening.

Their survey questioned more than 2,000 landlords, tenants and agents, and found that nearly all reported having at least one landlord selling at least one of their rental properties.

Goodlord’s chief executive, William Reeve, had said:

“We can see which forces are giving landlords pause for thought, where anxieties for tenants are coalescing, and how agents are preparing for change.

“The private rental sector is a vital part of our economy; we hope this report provides valuable insight to all of its stakeholders and encourages decision makers to take the steps which will boost confidence in the market, particularly for landlords.”

Tom Goodman, the managing director at Vouch, had said:

“Although it’s understandable to see rising concern from agents and landlords about the changes to come, it’s more important than ever to see the positive in this shifting landscape.

“Upcoming legislation is a real opportunity for letting agents to demonstrate their value to landlords and tenants, meaning clued-up letting agents will continue to thrive.”

As with all investing in financial markets, while some are selling in a depressed market for sales, others will be buying cheaply with a view to rent properties out; new opportunities begin to appear. For those landlords willing to navigate the new rules, and perhaps operate through a limited company to minimise the Section 24 tax rules, with tenant demand as never before, it could soon be the time to invest?

View Full Article: London in rent crisis as thousands of landlords tried to sell last year

Brighton looks to licence 23,000 properties under massive new scheme

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Brighton & Hove Council hopes to introduce a huge selective licensing scheme that would eventually cover 17 of the city’s 23 wards.

Councillors are set to give the go-ahead for a consultation into plans to introduce the scheme in areas where there is a clear link between poor property conditions, deprivation and private rented homes, in Kemptown, Moulsecoomb & Bevendean, Queens Park and Whitehawk & Marina. This would cover about 4,000 properties.

Government approval

The authority also wants the option of introducing a further scheme covering 13 wards in: Brunswick & Adelaide, Central Hove, Goldsmid, Hanover & Elm Grove, Hollingdean & Fiveways, Preston Park, Regency, Rottingdean & West Saltdean, Round Hill, South Portslade, West Hill & North Laine, Westbourne & Poets Corner and Wish. This would cover another 19,000 properties and needs Secretary of State approval.

An additional licensing scheme has also been proposed after the previous one ended earlier this year, covering about 1,900 smaller HMOs.

Licence fee

A 12-week consultation would begin in late September, with the first scheme potentially in place by July 2024. If agreed, the second scheme could start in summer 2025. A suggested fee of £670 would cover the five-year licence.

Councillor Gill Williams, chair of the housing & new homes committee, says: “Time and again we hear from residents about their poor experiences with landlords and uninterested letting agents, who fail to maintain their property and force tenants to live in sometimes disgusting, uninhabitable conditions. These proposed landlord licensing schemes will help tackle the problem of landlords who fail to manage and maintain their properties.”

Last November, the council introduced a tough new set of policies designed to reduce HMOs’ impact on local communities, relating to both new-build planning applications and changes of use to or from a single-family home to an HMO.

View Full Article: Brighton looks to licence 23,000 properties under massive new scheme

Extra funding on offer to make PRS more accessible for disabled tenants

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Landlords and tenants are being encouraged to apply for new funding to help older and disabled people make adaptations in their homes so they can continue to live independently.

The Department for Levelling Up, Housing & Communities has announced a £50 million fund that will be available as Disabled Facilities Grants (DFG) from local authorities in England, providing a tenant is living in the property that needs an adaptation. These grants can be used to fund up to £30,000 of works.

Improved access

The cash boost follows the government’s call for evidence on the Older Persons’ Housing Taskforce and Disabled People in the Housing Sector which Propertymark says it used to encourage improved access and better promotion of the grants to private landlords and their agents to ensure more PRS property is accessible.

It believes local authorities should be required to improve understanding of the number and needs of disabled people in their area, with data informing local development plans to ensure the right type of housing is provided.

Growing number

Propertymark says although tenants with disability issues need to be living in a property to access the DFG, landlords and their agents should consider ways they can future-proof their businesses by providing housing to the growing number of older and disabled people accessing the PRS.

According to the Older Person’s Taskforce for Housing, there are 12.4 million people in Great Britain aged over 65 (18% of the population), which is projected to rise to 20.4 million by 2041. 

The agent group adds: “We also used the call for evidence as an opportunity to reaffirm our call for a better relationship between local authorities and private landlords. One opportunity to do this could be that local authorities keep a database of adapted properties that they could signpost tenants to suitable properties.”

View Full Article: Extra funding on offer to make PRS more accessible for disabled tenants

Selective licensing schemes are an unnecessary expense and should only be used as a last resort – Special Report

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Up and down the country landlords are caught in the trap of having to pay for a selective licence.

These licenses aren’t cheap and for the money landlords spend, councils don’t appear to be inspecting properties.

In a series of special reports

View Full Article: Selective licensing schemes are an unnecessary expense and should only be used as a last resort – Special Report

Landlord/Freeholder charging £200 to register a tenant?

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Hello, my flat which I let out, is in a block of 15. As leaseholders, we applied and got RTM. Even though no other buildings are on the land, which now has a separate title, the landlord charges out for gardens.

View Full Article: Landlord/Freeholder charging £200 to register a tenant?

Government policies force landlords to shrink portfolios

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Landlords have been reducing their property portfolios across England and Wales due to unfavourable policies by the past few Conservative governments, one letting and estate agent says.

The research by Benham and Reeves compared the number of properties owned by investors in the first quarter of 2022 and 2023.

View Full Article: Government policies force landlords to shrink portfolios